All financial income sources carry a similar weight. However, when it comes to achieving financial freedom, passive income is considered an important step after active income, and have more advantages than active income.
Active income is the income generated from personal efforts, such as being employed by a company. An individual needs to keep working in order to continue earning this type of income, for if an employee quit, he or she will not receive an active income. His time literally equals financial income. However, a passive income is an income that doesn’t require an individual to work physically while they continue to receive an income.
One of the most effective ways to accumulate wealth, of course, after getting a sustainable salary, stretching their budget, reducing debt, and boosting savings, is to create additional income, for instance, passive income, other than one source of income. The passive income can be achieved through more than one type of source at the same time; for instance, through rental property or a business in which the investor does not actively participate, such as receiving income from book royalties and stock dividends at the same time.
However, like anything else, personal finance undergoes its share of trends. Hence, individuals must evaluate each trend based on their current needs and goals before getting involved. Individuals must know that passive income, of course, need some efforts at the first stages. Also, some forms of passive income may be a great source of income, while others may not be ideal. For instance, investing in an exchange market can be a great way to generate passive income, but only if the assets you own pay dividends or interest. Non-dividend-paying stocks or assets may be exciting, but they do not earn passive income.
The following are some few examples of passive income ideas.
Selling information products
One popular strategy for passive income is establishing an information product, such as an e-book or an audio or video course. These products can also be distributed and sold through blogs or sites.
Alternatively, you might consider a freemium model that builds up a following with free content and then charges for more detailed information for those who want to know more. For instance, language teachers and stock-picking advice may use this model. The free content acts as a demonstration of your expertise and may attract those looking to go to the next level.
Information products can deliver an excellent income stream as a result of generating financial values easily after the initial outlay of time.
However, it is important to note that it takes a great number of skills and effort to create the product, and to generate high income from it, the product has to be great. It must be a strong platform that must be carefully advertised, and if you want to be successful, more products should be planned.
Also, if an individual has a unique story, they can write it, turn it to a book, then sell it on Amazon. They can use services, such as Amazon’s self-publishing tool, to have their book published and distributed either as e-book or paperback. However, they have to work with an editor before publishing to ensure that their book is polished and professional. Once their book is published online, they will generate income as people buy it. In addition to earning some extra income, they will build their reputation and increase their digital profile.
Utilizing hobbies
Individual seeking another income may take their passion for a subject and turn it into a blog, run an Instagram or Tiktok account hosting ads for other businesses, or set up a YouTube channel using ads, affiliate marketing, or sponsor strategies to generate more income. Find a popular subject, even a small niche, and become an expert on it. Also, individuals can teach others how to become a master of their craft with online courses. At first, you’ll have to build out a suite of content and draw an audience, but over time, it can create a steady income stream over time as you become known for your engaging content.
You can leverage a free or very low cost platform, such as bluehost, and then use your great content to build a following. The more unique your posts, voice, or area of interest, the better for you to become the person to follow. Then, you’ll need to draw sponsors to your platform. You’ll have to build out content at the start and then create ongoing content, which can take time. And you’ll need to be passionate about the product since that can help you maintain the motivation to continue, especially at the start as your followers are still finding you. For instance, a nurse can share her healthcare experiences of pregnancy, or parents can share their parenting advice on a YouTube channel. These creative outlets help others broaden their knowledge while also earning some additional income.
Consultants are in high demand, and the profession is considerably flexible. You can register as an expert on some website, such as Clarity and Fiverr, to consult for as many or as few hours as you want in a given month. People can schedule calls with you, for instance, to hear your advice and discuss their ideas, and you generate income for talking about your experiences.
The real downside here is that at the beginning, you can outlay time and resources, but with little result, particularly if there’s limited interest in your subject or niche. Your area of expertise may be too niche to really draw a profitable audience, but you won’t be sure of that until you experiment.
Create an app
Creating an app could be a way to create that upfront investment of time and then generate the reward over time. An investor can create an app that might be a game or one that helps mobile users perform some hard-to-do function. Once the app is public, users download it and you can generate income.
An app can be advantageous if you can design something that captivates an audience. You’ll have to consider the best way to generate sales from your app. For example, you might run in-app ads or otherwise have users pay a nominal fee for downloading the app. If your app gains popularity, you’ll likely need to add incremental features to keep the app relevant and popular.
The biggest risk of creating an app is that, at the beginning, an investor uses his time unprofitably. If you commit little or no capital to developing the app, or capital that you would have spent anyway, for example, on hardware, there are fewer financial downsides. However, in a crowded market, truly successful apps must offer a compelling value or experience to users. The popularity of apps can be short-lived, too, meaning your cash flow could dry up faster than you expect.
Rental income
Investing in rental properties is an effective way to earn passive income, but it often requires more work than people expect. To create a great investment, investing in rental property require three things the investor needs to learn about:
1. How much return will be generated on the investment?
2. The property’s total costs and expenses.
3. The financial risks of owning the property.
For instance, if an investor’s goal is to earn 10,000 USD a year in rental cash flow and the property has a monthly mortgage of 2,000 USD and costs another 300 USD a month for taxes and other expenses, they must charge approximately 3,133 USD in monthly rent to reach their financial goal.
Additionally, there are a few other questions to consider, such as: is there a market for investing in a property? What if the monthly rental cost is higher and an investor is unable to rent out the property? Could any of these factors put a big dent in the idea of the rental passive income?
Economic downturns can also pose challenges, too. An investor in a property may suddenly have tenants who can no longer pay their rent, while the investor may still have a mortgage of his own to pay. And home prices have been rising as of late, due in part to low mortgage rates, so the income generated from the rents may not be able to cover the investment expenses. A plan to weigh up these risks and have contingency plans in place to protect investment is needed before the start.
Affiliate marketing
With affiliate marketing, website owners, social media influencers, or bloggers promote a third party’s product by including a link to the product on their site or social media account. Amazon might be the best-known affiliate partner, and eBay, Awin, and ShareASale are among the larger names in the market, too. Recently, new participants in the affiliate market, such as Instagram and TikTok, have become huge platforms for those looking to grow a following and promote products.
An investor could also consider growing an email list to draw attention to his blog or otherwise direct people to products and services that they might want. The mechanism of the affiliate marketing is that when a customer clicks on the link and orders or purchases from the third-party affiliate, the site owner earns a commission. The commission might range from three to seven percent, so it will likely take a significant number of customers on the site to generate serious income. But if an investor can grow his following or have a more lucrative niche, such as software, financial services, or fitness, they may be able to earn an increasingly higher income.
Investors should limit the types of products to those that are closely associated with the theme or topic of their website or blog. If the website, for instance, has too many adverts, people will soon become annoyed or distracted. Some affiliate broker services include Google Adsense, Amazon Associates, ClickBank, Commission Junction, Flex Offers, etc.
Affiliate marketing is considered passive income because an investor can, in theory, earn income just by adding a link to his site or social media account. However, an investor won’t generate income if he can’t attract readers to his site to click on the link and buy products. If an individual is just starting an affiliate market investment, he will have to take time to create content and build followers. It may take significant time to build a following, and he has to find the right formula for attracting that specific audience of potential buyers, which encompasses a potentially cumbersome process.
Dividend stocks
Shareholders in companies with dividend yielding stocks receive a payment at regular intervals from the company. The majority of companies pay cash dividends on a quarterly basis out of their profits. In order to receive a dividend, an investor needs only to own stock. Dividends are paid per share of stock, so the more shares an investor owns, the higher the dividends received.
Since income from stocks is not related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of generating income. The capital will simply be deposited in an investor’s brokerage account.
However, the tricky part is choosing the right stocks that can generate dividends. Some companies offer lower or no dividends than others. Investor should own stocks in a company that generates or has the potential to distribute higher dividends. Also, investors may need to consider that some companies issuing a very high dividend may occasionally be unable to sustain the payment. An investor must investigate each company’s website and choose a company with comfortable financial statements that include long records of higher percentage dividends. Similarly, to stocks, Exchange Traded Funds (ETFs) can be good options for generating passive income.
Exchange Traded Funds are investment funds that hold assets, such as stocks, commodities and bonds, and are traded like stocks. ETFs also diversify holdings, so if, for example, one holding company cuts its payout, it doesn’t affect the ETF’s price or dividend too much.
ETFs are an ideal choice as are easy to understand, highly liquid, inexpensive, and have far better potential returns for their lower costs as compared to stocks or even mutual funds. ETFs are considered to be among the saver investment, which results in more investors investing a record of 900 billion USD of new investments at the end of 2021, thereby obliterating the prior record of 504 billion USD set in 2020.
The key risk is that, like stocks, ETFs can move down significantly in short periods of time, for example, during times of uncertainty, as in 2020, when the coronavirus crisis shocked financial markets. Economic stress caused some companies to cut their dividends entirely, even though a diversified portfolio may experience fewer losses. In the following chapter, we will explore how to invest in both the stocks and ETFs in greater detail.
Other passive income idea are, for instance, bond ladder, A high-yield CD, Rent out home, Flipping retail products, Peer-to-peer lending, Real estate investment trust (REIT), Sell designs online etc.
To learn more about the passive incomes and other investments, you can purchase THE FIRST INVESTOR book and receive a discount by clicking on The First Investor .